Press Release|Public Finance
KBRA Affirms AA Rating for Chicago Transit Authority Sales Tax Receipts Revenue Bonds, and Affirms AA- Rating on Second Lien Sales Tax Receipts Revenue Bonds; Outlook on Both Liens is Stable
7 Mar 2024 | New York
KBRA affirms the long-term rating of AA for the Chicago Transit Authority (CTA) Sales Tax Receipt Revenue Bonds (First Lien). The long-term rating of AA- for CTA's Second Lien Sales Tax Receipts Revenue Bonds is also affirmed. The Outlook for both liens is Stable.
Key Credit Considerations
The ratings were affirmed because of the following key credit considerations:
Credit Positives
- Pledged revenues derive from a broad-based sales and use tax levied in the regional transportation district and have historically provided strong debt service coverage.
- The 2.0x First Lien and 1.50x Second Lien additional bond provisions provide sound protection against over-leveraging.
- Historically consistent levels of funding reflect the essentiality of CTA mass transit services to the economic underpinnings of the Chicago metro area.
Credit Challenges
- Pledged revenues (Sales Tax Receipts) are economically sensitive. The level of the combined state, county, city and RTA sales tax is already exceedingly high at 10.25%, leaving little flexibility for an increase.
- Sales Tax Receipts Revenue Bonds are not secured by a debt service reserve fund.
- Sales Tax Receipts can be intercepted for pension contributions or to satisfy the farebox revenue recovery ratio. Continued waivers of this ratio beyond 2025 are dependent upon actions of the State legislature.
- Operating liquidity, based on unrestricted cash and cash equivalents, is thin.
- CTA is projecting an operating shortfall of $576.9 million in FY 2026. There is currently no definitive plan in place to address this shortfall.
Rating Sensitivities
For Upgrade
- Increased statutory allocation of pledged revenues, including a pledge of additional revenue sources, and increased RTA discretionary funds to CTA.
- Significant and sustained improvement in debt service coverage.
For Downgrade
- Significant decline in pledged revenues.
- Significant decline in debt service coverage.
To access rating and relevant documents, click here.